These 4 Measures Indicate That Dongkuk Refractories & Steel (KOSDAQ:075970) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Dongkuk Refractories & Steel Co., Ltd. (KOSDAQ:075970) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Dongkuk Refractories & Steel's Debt?

You can click the graphic below for the historical numbers, but it shows that Dongkuk Refractories & Steel had ₩26.9b of debt in June 2025, down from ₩30.5b, one year before. However, it does have ₩13.4b in cash offsetting this, leading to net debt of about ₩13.6b.

How Healthy Is Dongkuk Refractories & Steel's Balance Sheet?

We can see from the most recent balance sheet that Dongkuk Refractories & Steel had liabilities of ₩40.7b falling due within a year, and liabilities of ₩3.32b due beyond that. Offsetting this, it had ₩13.4b in cash and ₩22.7b in receivables that were due within 12 months. So it has liabilities totalling ₩7.94b more than its cash and near-term receivables, combined.

Of course, Dongkuk Refractories & Steel has a market capitalization of ₩52.2b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.

See our latest analysis for Dongkuk Refractories & Steel

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Even though Dongkuk Refractories & Steel's debt is only 2.2, its interest cover is really very low at 2.3. The main reason for this is that it has such high depreciation and amortisation. These charges may be non-cash, so they could be excluded when it comes to paying down debt. But the accounting charges are there for a reason -- some assets are seen to be losing value. Either way there's no doubt the stock is using meaningful leverage. Notably, Dongkuk Refractories & Steel's EBIT launched higher than Elon Musk, gaining a whopping 161% on last year. There's no doubt that we learn most about debt from the balance sheet. But it is Dongkuk Refractories & Steel's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. In the last three years, Dongkuk Refractories & Steel's free cash flow amounted to 46% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

When it comes to the balance sheet, the standout positive for Dongkuk Refractories & Steel was the fact that it seems able to grow its EBIT confidently. But the other factors we noted above weren't so encouraging. To be specific, it seems about as good at covering its interest expense with its EBIT as wet socks are at keeping your feet warm. When we consider all the elements mentioned above, it seems to us that Dongkuk Refractories & Steel is managing its debt quite well. Having said that, the load is sufficiently heavy that we would recommend any shareholders keep a close eye on it. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Dongkuk Refractories & Steel you should be aware of, and 1 of them is potentially serious.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.